This guide outlines the principles that a former British tax resident should use when completing an income tax return in France. We present an overview of the system and outline different types of income and how you should declare them.

The guide is for general information only. It is not possible to cover every individual tax situation and cannot be a substitute for professional advice. There may be additional matters in your financial affairs which mean certain parts of this guide do not apply to you,

• Income tax forms
  • What does being 'fiscally' resident mean?
  • French fiscal residency
  • Receiving your forms
  • The different forms
  • Take your time
• How you are assessed by the French authorities
  • Assessable income
  • Taxable income
  • Assessable income vs taxable income
  • The taux-effectif
  • Other exceptions
  • Personal allowances
  • The Quotient Familial
  • Tax rates and bands for 2008 income
• Key dates
• Step-by-step guide to filling in the forms
  • UK private and company pensions, UK state old age pension, pension annuities
  • UK 'government' pensions (armed forces, teaching, university, NHS, diplomatic, local government, civil service)
  • UK or French benefits, such as incapacity benefit
  • Furnished UK rental income
  • UK dividends (normal UK stocks and share dividends - some US dividends - PEPs and ISAs and and Premium Bond winnings)
  • UK interest (bank and building society, interest from PEPs and ISAs, National Savings)
  • French interest
  • Expenses
  • Foreign tax credit
  • UK and some international investment bond withdrawals where no social charges have been deducted
  • French and some international investment bond withdrawals where social charges have been deducted
  • Capital gains of shares, and PEPs / ISAs (property capital gains are dealt with on form 2048)
  • French furnished rental income
  • Income from lettings from chambres d'hotes or gites (where services are provided)
  • Income from French jobs
  • CSG

FOR a new resident, determining fiscal residence is the starting point of everything to do with taxation, social charges, healthcare, wealth tax, inheritance tax and even how succession law can be applied.

It is whether or not an individual is considered to be fiscally resident in a country that will render that person liable to the entirety of the tax laws of that country.

It is important to note that, contrary to popular belief, determining whether or not someone is resident for tax purposes in a country is always based on fact; the status of ‘fiscal residency’ cannot be freely chosen at will.

It is a question of fact, not choice.

Different countries have different ways of assessing the same income so the means in which the tax might be paid will differ from country to country.

However, what will generally never change is the statutory right of the tax authorities of the country in which someone is fiscally resident to assess that person for taxation on their income, gains and assets - usually resulting in tax being due. However, this right of taxation is not automatic and whether or not it is applied may depend on multiple criteria. It is further complicated by the fact that if, for example, income arises in one country, and the taxpayer is in another country, both countries may claim the right to tax it.

Under the Franco-British Treaty, where a British tax resident moves to France, the first right of seeing in which country the taxpayer is fiscally resident falls to the country to which the taxpayer has moved - France.

As a result, French tax law kicks in, and this states that an individual will be considered to be fiscally resident in France if they fulfil any of the following four criteria :

• they have a home in France (not including secondary residences).
• they spend most of the French tax year in France,
• they have their ‘centre of economic interest’ in France (taken to be where income and bank statements, for example, are received, rather than where they are sent from),
• they run a business from France.

• The main tax return form, the 2042, will be arriving by post from the April 24.
• If you have not previously made a French tax declaration, you must obtain a copy of the forms you need to complete from your local tax office or by downloading them from the tax authority's website www.impots.gouv.fr from May 1. On this site, about half way up the page on the right there is a recherche section with a white box. Underneath this box there is recherche de formulaire - click on this.
  For this year, type '2009' in the first box labelled année, and the number only (not the letter suffix) of the form you require in the numéro d'imprimé box, and then click on recherche in the blue bar, bottom right.
• A window will appear with all the different versions of the form by letter suffix. Click on the drop down bar in the centre. The normal version of the form required is the remplissable version. This should open up a pdf of the form.
• It is your responsibility, the taxpayer, to ensure that the correct forms are obtained, completed and submitted. It is no defence to say a form was not completed because it was not sent to you. The penalty system here works well and is very efficient, so be warned.
• If you have previously made a tax declaration, then you will receive the 2042 form, the main form, but it is then down to local variations as to whether or not you will also receive the ancillary forms you need to complete.
  Again, it is your responsibility to ensure that the correct forms are submitted.
• The deadline for forms to be returned to tax offices is May 30 this year. Deadlines for online submissions vary depending on your area of France.

There are three main tax forms, each referred to by a four digit number and sometimes followed by a letter. The final versions of the forms were unavailable as we went to press.

The following references to forms are based on the ones from 2008 but please note that other versions may come into use.

2042 - the main tax return - is always required. The 2042K is for employees of French companies and often arrives prefilled. The main 2042 form does include figures which come from other forms, so do not be surprised if figures appear on more than one form.

2042C - the complimentary tax form, generally for furnished lettings, gains, and foreign tax paid on foreign investments.

2047 - the foreign income form, always required if you have income that arises outside of France, and irrespective of which country the income arises. However, while the first two pages of the form are fairly straight forward the sections on page 4 need a few more words of explanation:

Section V: This section is for declaring business income earned overseas (salaries and similar earnings go on page 1, section 1 of the form). The critical issue with this sort of income is not where the work is done or invoiced from, but from where the business is managed. If the business is managed from France in any way whatsoever, the profits fall to be taxed in France and not the UK, even though the business might be situated in the UK.

As these businesses will not have suffered income tax, all that is required is to insert the net profit or earnings. A useful tip is that if the business is managed in France (and hence assessable in France) and yet much of the work is carried on outside of France, then it is worth keeping a note of the days spent outside of France since, when spending more than half the year working outside of France, some income may not be taxable in France.

Section VI: Income from certain countries that has suffered tax in those countries may be entitled to a tax credit computed according to set formulae. The list of these countries is included on pages 2 and 3 of the notes to the 2047 form. Income from these countries that is referred to in the notes should be inserted in this section. As Britain does not feature in the relevant pages in the notes, no British income should appear in this section.

Section VII: This section is for income that is assessed outside of France but which is nevertheless also used by the French in calculating the tax liability, such as UK 'government' pensions and UK rental income. All income that has been earned and assessed outside of France should be inserted in this section, and any tax paid outside of France on this income should be inserted in column 5.

2044 - the form for declaring income from rents, chambres d'hotes and gites lettings, and business income in general.

Please note that some of the same information does have to be inserted on several forms, in other words twice, and, if you are sent the incorrect forms, remember that it is up to you to request the correct ones.

The forms are for individual or joint taxation, both spouses, or pacs partners needing to insert their details on the same forms.

Before completing the form, it is worth spending time collating the information and preparing it on a separate sheet in the right format for entry onto the tax returns. A copy of this can also be sent with the tax return to assist the tax office. Each of the following sections sets out the information required, followed by the relevant form, page, section and item that needs to be completed.

For French fiscal residents, worldwide income is assessable in France irrespective of the country in which it arises, and so all income has to be declared for assessment in France, in euros. While it is the rule that the income actually received in the tax year is that which needs to be declared, the French "Fisc" (the equivalent of the British Inland Revenue) is becoming more user friendly towards the British April-April assessment window. Its tax offices are increasingly accepting official confirmation of income over a 12-month period ending in the French tax year of assessment.

This means that any official document that is issued for use in the UK, for the UK's tax year, can be acceptable to the French.

The reason for this is that, unsurprisingly, the French authorities have discovered that in declaring income received in January to December, the amount declared is, year-onyear over time, exactly the same as the income declared 'April-to-April'.

• Assessable income is the total gross income available to be considered liable to taxation.
• Taxable income is the assessable income after the deduction of abatements, allowances, and so on. It is this income figure which is subjected to the tax rates and bands.

Assessable income may be taxable, and some may not (for example that income forming part of the 'taux effectif').

The taux-effectif system essentially removes the advantage of having two sets of personal allowances - one in the UK and one in France.

Where income is assessed in the UK, such as 'government' pensions and UK rental income, the total of these incomes will still be taken into account by the French.

In practice, the total world gross assessable income is divided into two - that which has been assessed and taxed in the UK ('government' pensions and UK rental income), and all remaining French gross assessable income.

The tax liability is calculated on the gross world income figure, but the actual amount of tax that is then paid in France is the result of the following fraction:

In order to simplify taxation, certain forfeit systems have evolved, such as:

Micro-BIC - a system of taxing a certain percentage of the commercial business income, so avoiding the need to submit accounts.

Note that this does not mean that there is no need to have accounts, as book-keeping and accounts are required, it is just that the accounts do not have be submitted.

Micro-BNC - the same, but for non-commercial activities

Micro-foncier - a similar system applying to rental income

Assurance Vie - these forms of investment mediums have also their own specific system, plus an abatement after nine years

These do not exist in the way that they do in the UK, but the French system produces similar effects through the use of the "family quotient". Effectively, therefore, your total household tax-free allowance is the number of parts the household is entitled to, multiplied by the 0% tax band upper income limit of €5,852.

Accordingly, a couple on their own would have between them, a tax free allowance (personal allowance) of €5,852 each, or €11,704 between them.

Each person forming part of the taxable household is entitled to a "part", these parts being collectively known as the 'quotient familial’, the 'family quotient'.

Each adult spouse or civil partner is entitled to one full "part", and certain other family members are also entitled to a full part if they are being supported financially by those being assessed.

The first two children are entitled to a half "part" each. A third child or more takes a whole part. These children are supported by the parents, or couple filling in the form.

The implication or use of the 'family quotients' is that your gross taxable income is divided by the total number of these "parts".

The final sum is then taxed as it falls into the various tax bands.

The 'quotient familial' has become a very complicated system. Additional "parts" are attributable to what effectively are 'single parent' situations, and divorced parents having minors, whether or not they are responsible for them.

In addition, while the 'parts' should be calculated according to the taxpayer's situation January 1 of the tax year, it is permissible to use the situation of December 31 of the tax year if this is more advantageous to the taxpayer.

The number of 'parts' relating to your 'family quotient' are as follows, noting that a foyer (the French for 'household') is both married partners, pacs partners or persons living together ('concubinage'), plus people for whom financial responsibility is assumed and who live under the same roof, such as children. The essentials of the basic regime are:

1 part per partner or single, divorced or widowed person, or elderly person being supported financially and living at the same premises, or 'invalide' person again being financially supported and living at the same premises.

1/2 part for each of the first two children, the third child onwards gives rise to full part.

1/2 part for an adult themselves if they hold the French 'carte d'invalidité'

1/2 parts can also be given to a divorced parent not having the care of a child

Example: A married couple with two children will be entitled to three parts - one for each of the parents, and

half a part for each of the two children = 3 parts. Their combined gross taxable income is !42,000, so:

Divide the gross income of €42,000 by 3 = €14,000 Then:

Then multiply the tax back up by the 3 parts €645,79 x 3 = €1,937,37 total tax to pay

If we add in the taux effectif mentioned above, where €12,000 of the family’s €42,000 total gross income comes from UK rental income, then €30,000 (€42,000 - €12,000) would be taxable in France.

Accordingly, the fraction applicable would be:

Summary:

1 part:
• Single, widowed or divorced

1.5 parts:
• Single, widowed or divorced being an 'invalide'

2 parts:
• Married, PACS, or other couple
• Single, widowed or divorced living alone with a dependant
• Single, widowed or divorced living alone with two children
• Single, widowed or divorced person supporting two children

2.5 parts:
• Married, PACS, or other couple, one of whom is an ‘invalid’
• Married, PACS, or other couple, both of whom are 'invalides'
• Married, PACS, or other couple supporting one child

3 parts:
• Married, PACS, or other couple with a dependant
• Married, PACS, or other couple with two children
• Single, widowed or divorced person supporting two children and one dependant

3.5 parts:
• Married, PACS, or other couple, one of whom is an 'invalide', supporting two children
• Single, widowed or divorced person, being an 'invalide', supporting three children

4 parts:
• Married, PACS, or other couple, supporting three children
• Single, widowed or divorced person, supporting four children

January 1 - December 31, 2008 - the tax year

April 24, 2009 - tax declaration forms issued for 2008 income

May 30, 2009 - tax declaration deadline

Payments:

Feb 15 - 1st on-account payment of tax for previous year’s income (equal to 1/3 of your last income tax payment)

Note:
Gross = the figure of income before any tax is taken off
Net = the figure of income after tax has been deducted

These are declared in total, per person, by country of origin. 'Government' pensions are excluded from this section, so add together all of the other gross pension income - including the Old Age State pension and annuities - for each spouse individually, and ...

  A   FORM 2047  page 1 – section I – item 2

Insert the total pension amount (private, occupational and the OAP) for each spouse and the country of origin of the payment of the pensions.

 B  FORM 2047  page 4 – section VIII

If, and only if, you are in receipt of the UK Old Age State pension and have an E121 certificate, insert here the same figure as above for your joint total pension incomes as in section I item 2 of the same 2047 form.

If it is the first time you are completing this form, and ONLY if you are receiving the UK Old Age State pension, it is worth adding somewhere the comment "non assujettis au CRDS, exonéré par le E121" (not subject to the Contribution Pour le Remboursement de la Dette Sociale - a tax to help pay off France's social security debt) and include a copy of your E121 certificate as proof.

In note 17 in the notes to this 2047 form, it is stated that the charge to the CRDS is applicable if a taxpayer is, in any way, a liability to the French social security system - but the E121 provides an exception from being a liability to the French health system as the subscription costs are paid by the UK.

 C  FORM 2042 page 3 - section 1- item 3

Take your total from the form 2047 above to box AS, and take the total of spouse's pensionfrom the form 2047 above to box BS.

 D  FORM 2042 page 4 - section 8 - box TL

These are all pensions paid by the Paymaster General and some paid by third parties associated with the government. These are again declared in total, per person, by country of origin, so state the gross 'government' pension income for each spouse individually...

 E  FORM 2047 page 4 - section VII

Insert the person receiving the pension income, the country, the nature of the revenue (pension), and the total gross pension for each spouse; one spouse per line. Then total the section (including any UK rental income that has suffered UK income tax, - explained further ahead). (see image)

 F  FORM 2042 page 4 - section 8 - box TI

This income is considered to be replacement income for earnings. Accordingly, it is taxed as if it were those earrings, and so the total amount received should be inserted…

 G  FORM 2047 page 1 section 1 item 1

Insert the total amount of the UK benefit received on the relevant line, and insert the country from which the benefit is paid. (see image)

 H  FORM 2042 page 2 section 1

The annual profit is declared in total, per person (or half each for a couple), by country of origin. Add together all of the UK rental profits for each spouse, individually, which have been declared to the UK Inland Revenue, and then ...

 I  FORM 2047 page 4 - section VII

Insert the person receiving the rent, the country, the nature of revenue (locations), and the total profit for each spouse, one spouse per line. Total the section, including 'government' pensions, if any, (as mentioned above in the 'government' pensions section) ... (see image)

 J  FORM 2042 page 4 - section 8

These are declared net, in total, jointly, for both spouses. Add together all of the net dividends for both spouses, from all sources (including dividends earned through PEPs and ISAs as these are not tax free in France), by country of origin.

 K  FORM 2047 page 2 - section A

Insert the country of origin in column 1 and the total net dividends received in column 2. The tax credit that has been deducted in the UK needs to be added separately, and is dealt with by adding in column 3 the percentage grossing up figure found alongside the country on page 3. For the UK (RU, for Royaume Uni), this is 11%, so insert the 11% in column 3. In column 4 you insert the tax credit which is the result of multiplying the net income from column 2 by the percentage figure in column 3. Total columns 2 and 4 at the bottom, then take the total of column 2 (the net dividend) to line A on the right, and the total of column 4 to line B on the right.

Add lines A and B together and insert the total gross income on line DC. Insert any charges that you wish to claim, noting that you need to be able to prove these, in line CA, and then the tax credit total figure from column 4 needs to be inserted once again on line TA. Portfolio management fees and allied costs are not deductible as charges. (see image)

 L  FORM 2042 page 3 - section 2

Insert in the third item down, item DC, the total from line DC of the 2047, and, if you have claimed charges, enter in the twelfth item down, box CA, the same figure as is on the form 2047. (see image)

 M  FORM 2042 C page 4 - section 8

These are declared in total, jointly, for both spouses, and it is the net figure of interest actually received, not the gross pre-tax income figure that is declared. Add together all of the net (after the deduction of tax, the amount actually received) and interest for both spouses, from all sources, by country of origin.

 N  FORM 2047 page 2 - section B

Insert the country of origin in column 1 and the total net income in column 5 for the income from that country. Total column 5 at the bottom then take the total of column 5 (the net interest) to line A on the right. Total the section and place the total in line TS.

 O  FORM 2042 page 3 - section 2

Declared in total, jointly, for both spouses, from the information on the forms provided by your French bank.

 P  FORM 2042 page 3 - section 2

Insert in what is now usually the second item down, item EE, the total of the interest from all bank accounts using the figure on the bank's form with the same reference.

In the UK, there is a 5% annual allowance against the profit element included in a withdrawal.

This 5% allowance is a UK concession, it is not a French one, and so in France the 5% allowance cannot be taken into account. You should declare the full profit element, jointly, from the total 'chargeable events' certificate (profit) incurred on the withdrawal. If you subscribe to a new contract during the course of the tax year with an assurer outside of France, then you need to tick box TT at the bottom of page 4 on the 2042 form.

 Q  FORM 2042 page 3 - section 2

Insert in the sixth item down, item CH, the total 'chargeable gains' as detailed in the annual documentation issued by the assurance companies. (see image)

These are declared in total, jointly, from the total 'chargeable events' certificate (profit) incurred on the withdrawal. Note that only the gains have to be declared, as they appear on the form produced by the assurance company.

 R  FORM 2042 page 3 - section 2

Declared in total, jointly, if the total value sold is in excess of €25,000. Note that the need to declare is not based on whether the amount of the gain exceeds the threshold amount, as in the UK, but on whether the value of the sale exceeds a threshold. If the value sold does exceed the threshold, then...

 S  FORM 2042 page 3 - section 3

This is income only from the renting of furnished accommodation, and is NOT the section to declare income or profits from 'chambres d'hotes' or 'gites' where any form of service is provided such as changing sheets.

This latter point means that if gites are rented out without any service being provided at all, of whatever kind and howsoever banal, then their income can be declared in this section.

If the income is under €15,000, the the micro-foncier system can apply, and in which case...

 T  FORM 2042 page 3 - section 4

Enter the income in box BE, and the tax office will automatically apply the abatement of 30%.

By definition, these activities will include services (such as, for example, the changing of sheets or cleaning). These letting activities fall to be taxed as non-commercial profits - 'bénéfices non commerciaux'. However, once again there is a forfeit taxation system, the Micro regime, which is available for incomes not exceeding €27,000 (incidently this has risen to €32,000 for 2009 income but that is for next year’s form). If the income is to be split between a couple, then half the total income is declared for each partner. If you are letting out more than one property on the same basis, again, compile a list of the address of each property and of the income from each property. If the letting income is below this threshold amount of €27,000...

 U  FORM 2042 C page 2 - section C

Insert in the second line, items NO and OO for each spouse, the total rental income - half the total for each spouse. The tax office will automatically account for a 71% expenses deduction, leaving only 29% of this figure as taxable.

If the income from the letting is in excess of the €27,000, then section C at the top of page 3 of the form 2044 would need to be completed. However, these sections require accounts to be completed, and so the completion of this section would normally be dealt with by an accountant as certain accountancy and fiscal rules need to be observed.

There is always the option to opt out of the Mirco regime if it is more beneficial for you.

Also note that if the €27,000 threshold is exceeded, then the Micro regime benefit is lost, but there is an exception for the two years following the year when the income exceeded the threshold that means that the Mirco BIC regime can be retained for these two years. However, care needs to be taken, as if the letting income exceeds the VAT threshold of €30,500, then the exception is lost and the lettings then become liable to VAT, and accounts will be required.

You will have been provided a payslip of some kind, which lists your income and the charges that have been deducted.

As these charges are allowable against your tax liability, you should have at the bottom of the payslip a section including the cumulative amounts for the tax year. Among these figures, there should be a line with something along the lines of "Revenu imposable", which is the income, less most of the charges. It is this figure which needs to be inserted on the tax form. Evidently, if you have several sources of income of the same type during the course of the tax year, then use a sheet of paper to list the sources, then add up the taxable income figures, and transfer the total to the tax form.

 V  FORM 2042 page 3 - section 1

Where CSG (Contribution Sociale Généralisée - a tax which helps fund the social security system) is paid in the previous tax year (thus for 2007 income, paid in 2008) on investment and rental income (not lettings), at the rate of 8.2%, part of this CSG payment on investment income can be reclaimed in the following year, this tax year. The amount of CSG that can be reclaimed is .8% of this same investment income, and the figure itself reclaimable should appear on your previous year's social charges assessment. It is declared in total and jointly.

 W  FORM 2042 page 4 - section 6